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Should Small Businesses Re-Think Offering 401(k) Benefits?

written by: •edited by: Ginny Edwards•updated: 10/29/2011

Since the debt ceiling debacle, Congress is looking to trim down the deficit where they can and one area may be 401(k) retirement plans and incentives and tax benefits now available to the small business owner. How harmful will this be? Jean Scheid takes a look.

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    Where's the Money?

    Small Business Owners Are Out of Money Laurie Kulikowski of MainST reported the possible reform to 401(k) incentives may hurt small business owners offering retirement plans to their employees because the tax benefits and incentives, if cut, will make offering these plans not so attractive.

    The losers also include employees, but again, small businesses always seem to get attacked first when it comes to balancing the budget in Washington.

    The Occupy Wall Street protest really isn’t organized all that well but they do demand cutting expenses on frivolous projects or programs on the Federal level. My favorite is President Obama’s approval of $1 Billion in solar loans to a company (Solyndra Inc.) that laid off over 1,000 workers after receiving the loans, went bankrupt and is now under investigation by the Federal Bureau of Investigation.

    Perhaps a little more investigation into Solyndra, Inc. would have saved the country a BILLION DOLLARS and now Congress wouldn’t be looking to cut 401(k) incentives and tax credits, an idea, that if approved, will only affect the smallest of retirement plans or employers with 100 workers or less.

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    The 401(k) Reform Plan

    According to the MainST report, “The Senate Finance Committee held a hearing on Tax Reform Options: Promoting Retirement Security” and some of the ideas presented were to lower the “maximum pretax contributions for workers or repealing the tax-deductible status of contributions altogether in favor of a flat tax credit upon withdrawal.”

    If the incentives to the small business owner to offer retirement plans such as 401(k)s are taken away, many plans will be cut because again, it’s another expense small business can’t afford. My take? Why not look at big biz and place some new restrictions there—they are the ones who can afford it.

    Again, MainST reports from the “U.S. Census’ Survey of Small Business Owners,” if the reform was passed, it would affect approximately “13 million employees” who now have 401(k) plans they look to use upon retirement and if plans are cut, most people will find it hard to save on their own and when retirement hits, we’ll only have another group of people teetering on the poverty level. Tell me why this is a good idea?

    For the small biz owner, if tax incentives are lost, retirement plans won’t be so attractive to offer and again from MainST, “That puts at stake the ability to stay competitive against larger companies in attracting talent.”

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    Passing the Burden

    It's Easier to Pass the Buck It seems every day since the U.S. Government seeks to cut spending, it’s always the small business owner being attacked. Take the program SelectUSA, for example. I reported for Bright Hub on SelectUSA and this is simply a bad idea and involves companies bidding on government contracts and offering products or services for government use only to receive tax credits. The problem? The small business owner can’t afford to compete with big biz when bidding on these contracts so again they are left behind.

    I also found in a Tea Party poll of what should be reformed or cut from the budget including energy programs that could save $21 billion, foreign aid that would cut $25 billion and the awesome (but in my opinion not needed, V-22 Osprey aircraft) that would save $6 billion.

    All of these, especially foreign aid seem like more prudent items to cut instead of making it harder for small biz to offer retirement plans. What are these finance committee members thinking in Washington? Apparently, their retirement plans are safe so just pass the burden once again to those who can’t afford it—the small business owner!

    This is not smart government and that’s why the fights and outright dislike between the Republicans and Democrats is becoming so embarrassing, it’s often hard to say “I’m proud to be an American” these days. Dare I say if I lived in a foreign country benefiting from aid I would be better off? No, I wouldn’t but for the U.S. Government to continue to shell out aid when the people of these United States of America are hurting so bad no longer makes sense to me.

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    I said above, that perhaps big biz should take on the burden of 401(k) reform and allow the incentives and tax incentives to stay on for any company employing 100 people or less. As a small business owner, 401(k) plans do help at tax time, but for employees it’s even a greater benefit.

    If an employee knows a 401(k) plan is pre-tax, meaning their contribution can be deducted from their gross pay and then federal and state taxes are applied on the adjusted gross pay, they’re encouraged to sign on. Most employers also match or offer a percentage to the contributions employees make into the plan and by making it impossible for small business to offer plans such as this, you can bet workers will be looking at companies who can afford to offer them, leaving the small business talent pool in a slim to none state.

    With the 2012 Presidential election race upon us, many are arguing over which is the best tax plan—should it be 9-9-9, a fair tax or a flat tax?

    The sad solution or should I say reality here is that no matter who ends up taking the Presidential Oath next, proposed plans are just that, proposed and everyone remembers all those promises made by other candidates in past years only to see those promises shelved.

    A President does not rule our government alone and that’s been clear of late with the feuding between our two prominent political parties.

    People should be angry and most are. The small business owner should be even angrier because as a unit, it’s harder for us to stand up for ourselves—we simply don’t have the lobbyist power or the big bucks to fight any type of budget cuts.

    I say instead of allowing the newly appointed Debt Super Committee of six Democrats and six Republicans to make decisions on where money could be saved, we should use some financial and economic experts who have no political dreams, only the education to make informed decisions that would affect all Americans equally, not just pick on the small business owner.

    What’s your take on the 401(k) reform? Are you a small business owner who would consider cutting your employee retirement benefits if the reform passes? What are your fears if it does pass?

    Drop me a comment and shout out loud while you can! Enough picking on small biz already—there are just too many other areas of government spending that could save billions if adequately reviewed by unbiased groups!

    Maybe it’s time to start a new protest and forget Occupy Wall Street, and instead, Small Business Owners Everywhere Fight Back! It’s an idea at least and one with enough support could at least land us in the national news spotlight, a place we hardly see ourselves of late.